Citation: Pennisi, S. The Integrated
Circuit Industry at a Crossroads:
Threats and Opportunities. Chips
2022, 1, 150–171. https://doi.org/
10.3390/chips1030010
Academic Editor: Paris Kitsos
Received: 5 September 2022
Accepted: 30 September 2022
Published: 6 October 2022
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Perspective
The Integrated Circuit Industry at a Crossroads: Threats and
Opportunities
Salvatore Pennisi
Dipartimento di Ingegneria Elettrica, Elettronica e Informatica (DIEEI)—University of Catania,
95125 Catania, Italy; [email protected]
Abstract:
With the outbreak of the COVID-19 pandemic, the persistent chip shortage, war in Ukraine,
and U.S.–China tensions, the semiconductor industry is at a critical stage. Only if it is capable of major
changes, will it be able to sustain itself and continue to provide solutions for ongoing exponential
technology growth. However, the war has undermined, perhaps definitively, a global order that
urged the integration of markets above geopolitical divergences. Now that the trend seems to be
reversed, the extent to which the costs of this commercial and technological decoupling can be
absorbed and legitimized will have to be understood.
Keywords: semiconductors; integrated circuits; fabs; shortage; talent
1. Introduction
The integrated circuit (IC) industry forms the basis of the overwhelming digitaliza-
tion process, i.e., the most important enabling technology for current and future applica-
tions. This has been made possible by the tremendous miniaturization and performance
improvement of IC processes—predicted by Moore’s Law—which, starting from about
10
3
transistors
on the first Intel 4004 microprocessor in 1970, reached
10
11
transistors
in
March 2022 (Apple M1 Ultra) [
1
]—an unprecedented and unsurpassed rate of improvement,
which has enabled, among other inventions, the Internet, mobile telecommunications, and
now smart cars. In brief, every industry into which ICs (microchips or simply chips) have
been introduced has benefited from greater efficiency, intelligence, and extended functions.
Due to this success, chips are today the fourth-most traded product globally (1.15 million
semiconductor units shipped last year, 2021)—after crude oil, motor vehicles and their
components, and refined oil—in a market that was valued at 0.6 trillion dollars in 2021,
with a 26% increase in year-on-year sales, and which is expected to reach 1 trillion dollars
in 2035 [2].
Some analysts have gone so far as to call chips the new oil, in that chips ‘power’ appli-
cations, by giving the country that is able to produce the highest-performing chips—thanks
to cutting-edge technology—greater power than other countries, in terms of computing
and communication capabilities, but also from a purely military point of view. One concept
that the Russia–Ukraine war has underscored so far is that Ukrainian forces have used
small and relatively inexpensive weapons, such as the Javelin and Stinger anti-aircraft
missiles, which adopt advanced semiconductors for guidance systems. A single Javelin
contains about 250 chips [
3
]. Western countries have banned the export of semiconductors
to Russia, and Russia does not have its own advanced chip production capacity; without
imports the Russian military cannot supply itself with precision-guided munitions.
Quite surprisingly, the key role of chips in global economies has only recently been rec-
ognized by governments and occupied public debate. In recent decades, global economies
have focused more on software and tertiary services, leaving chips as a pure commodity.
However, the COVID-19 pandemic and the war in Ukraine have highlighted the problem
of chip shortage (insufficient production of chips relative to demand), the fragility of the
Chips 2022, 1, 150–171. https://doi.org/10.3390/chips1030010 https://www.mdpi.com/journal/chips
Chips 2022, 1 151
semiconductor supply chain, and the fact that chips are strategic components. As a result,
the goal of many governments is currently to strengthen their resilience to external shocks,
and to safeguard their technological sovereignty by strongly supporting the integrated
circuit industry. Chipmakers, on the other hand, while improving the quality and number
of their fabrication plants (fabs) to satisfy the increased demand due to the exponential ex-
plosion of applications, have better understood their responsibilities as well as their newly
strengthened position of power, which in principle allows them to select their customers,
and to determine who can and who cannot get their chips. However, the war in Ukraine
and trade tensions between the U.S. and China have made the scenario more complex,
deteriorating a global order that preached the integration of markets above geopolitical
divergences, and resulting in the end of the age of globalization.
Finally, a difficult problem that can undermine any semiconductor strengthening
policy is the shortage of talent. While new fabs can be built in a couple of years with the
availability of adequate resources from private/public funding, qualified personnel cannot
be found simply by putting up money. It takes many years to train qualified professionals,
but first there must be people (young people) willing to invest their future employment in
this field. Semiconductor engineers (and, at the top of the list, analog design engineers),
are in high demand today, and their scarcity is likely to increase in percentage terms,
because the younger generation is less and less interested in hardware, while the number of
applications that use electronic components, and thus require hardware skills, is growing.
This paper follows another recent complementary publication by the same author [
4
],
and further analyzes the semiconductor ecosystem, in light of the rapidly changing sce-
narios. Section 2 describes the semiconductor supply chain and the types of companies
associated with making integrated circuits. Section 3 analyzes the key weaknesses and bot-
tlenecks in the chain. Section 4 elaborates on geopolitical and socioeconomic considerations.
Conclusions are drawn in Section 5.
2. IC Market, Supply Chain, and Types of Semiconductor Companies
ICs are the major enablers of current and future technologies and applications, such
as 5G/6G, smart factories and cars, blockchains, artificial intelligence (AI), and machine
learning. The semiconductor supply chain industry makes all this possible. This chain can
be broken down into six main stages, which take place in different parts of the world, and
involve thousands of companies and millions of people. For the purpose of the following
analysis, these stages, and the types of companies, will be summarized in the following
subsections. Before doing so, however, let us briefly mention the different segments that IC
production can be divided into: Logic; Memory; Analog; MPU (microprocessor unit); MCU
(microcontroller unit); Optoelectronics; Sensor/Actuators; Discretes; and DSP (digital signal
processor). See Figure 1 for global IC sales in 2021 (in billions of dollars), as reported by the
U.S. Semiconductor Industry Association, SIA [
2
]. In this framework—not specified in the
figure—Graphic Processing Units (GPUs) alone have a market of $23.90 billion. Driven by
power ICs, discrete semiconductors have had a big boost, as they were previously valued
at $23.8 billion in 2020. Memory and logic devices are expected to experience the highest
growth rate in the coming years, followed by the analog ICs needed for data conversion,
emerging automotive applications, and power management, and by microcontrollers and
sensors, due to high-performance IoT applications.
Chips 2022, 1 152
Chips 2022, 2, FOR PEER REVIEW 3
Figure 1. Global IC production segments and their market value in U.S. billions of dollars in 2021 [2].
In order of market share, IC applications can be divided into: Communications; Com-
puter; Consumer; (these three C-segments will continue to grow, due to the demand for
smartphones and connected devices, as well as games, wearable devices, and the devel-
opment of the metaverse); Automotive (which will grow, due to the demand for electric
vehicles with assisted/autonomous driving); Industrial (expected to grow steadily, due to
the necessary adaptation of production machines required by the fourth industrial revo-
lution); and Government (which shows limited growth). Figure 2 shows the market share
of the above segments for 2021.
Figure 2. IC applications and their market share in 2021 [2].
2.1. The Six Phases of the Semiconductor Supply Chain
(a) Raw materials and wafer fabrication. A variety of raw materials are used to make
an integrated circuit, ranging in price and availability, from abundant silicon, through
more than 100 gases, fluids, photomasks, reagents, etc., to expensive gold and rare earth
elements (REEs). At this early stage of manufacturing, ingots are formed from pure silicon,
154.8
153.8
74.1
57.8
43.4
30.3
19.6
19.1
2.8
0
20
40
60
80
100
120
140
160
180
Logic Memory Analog MPU Opto Discretes MCU Sensor DSP
Billion $
32%
31%
12%
12%
12%
1%
Computer
Communications
Industrial
Consumer
Automotive
Government
Figure 1.
Global IC production segments and their market value in U.S. billions of dollars in 2021 [
2
].
In order of market share, IC applications can be divided into: Communications;
Computer; Consumer; (these three C-segments will continue to grow, due to the demand
for smartphones and connected devices, as well as games, wearable devices, and the
development of the metaverse); Automotive (which will grow, due to the demand for
electric vehicles with assisted/autonomous driving); Industrial (expected to grow steadily,
due to the necessary adaptation of production machines required by the fourth industrial
revolution); and Government (which shows limited growth). Figure 2 shows the market
share of the above segments for 2021.
Chips 2022, 2, FOR PEER REVIEW 3
Figure 1. Global IC production segments and their market value in U.S. billions of dollars in 2021 [2].
In order of market share, IC applications can be divided into: Communications; Com-
puter; Consumer; (these three C-segments will continue to grow, due to the demand for
smartphones and connected devices, as well as games, wearable devices, and the devel-
opment of the metaverse); Automotive (which will grow, due to the demand for electric
vehicles with assisted/autonomous driving); Industrial (expected to grow steadily, due to
the necessary adaptation of production machines required by the fourth industrial revo-
lution); and Government (which shows limited growth). Figure 2 shows the market share
of the above segments for 2021.
Figure 2. IC applications and their market share in 2021 [2].
2.1. The Six Phases of the Semiconductor Supply Chain
(a) Raw materials and wafer fabrication. A variety of raw materials are used to make
an integrated circuit, ranging in price and availability, from abundant silicon, through
more than 100 gases, fluids, photomasks, reagents, etc., to expensive gold and rare earth
elements (REEs). At this early stage of manufacturing, ingots are formed from pure silicon,
154.8
153.8
74.1
57.8
43.4
30.3
19.6
19.1
2.8
0
20
40
60
80
100
120
140
160
180
Logic Memory Analog MPU Opto Discretes MCU Sensor DSP
Billion $
32%
31%
12%
12%
12%
1%
Computer
Communications
Industrial
Consumer
Automotive
Government
Figure 2. IC applications and their market share in 2021 [2].
2.1. The Six Phases of the Semiconductor Supply Chain
(a)
Raw materials and wafer fabrication
. A variety of raw materials are used to make
an integrated circuit, ranging in price and availability, from abundant silicon, through more
than 100 gases, fluids, photomasks, reagents, etc., to expensive gold and rare earth elements
(REEs). At this early stage of manufacturing, ingots are formed from pure silicon, and
cut into wafers, the size of which has gradually increased over the decades, to improve
productivity and reduce costs. The current state of the art uses wafers 300 mm in diameter
and 775 mm thick. Over the past two decades, the silicon wafer industry has gone from
more than 20 suppliers in the 1990s, to a handful of companies today. As Figure 3 illustrates,
Chips 2022, 1 153
Japan’s Shin-Etsu and Sumco are the world’s largest producers of silicon wafers, followed
by Taiwan’s GlobalWafers, Germany’s Siltronic, Korea’s SK Siltron, and France’s Soitec [
5
].
Chips 2022, 2, FOR PEER REVIEW 4
and cut into wafers, the size of which has gradually increased over the decades, to im-
prove productivity and reduce costs. The current state of the art uses wafers 300 mm in
diameter and 775 mm thick. Over the past two decades, the silicon wafer industry has
gone from more than 20 suppliers in the 1990s, to a handful of companies today. As Figure
3 illustrates, Japan’s Shin-Etsu and Sumco are the world’s largest producers of silicon wa-
fers, followed by Taiwan’s GlobalWafers, Germany’s Siltronic, Korea’s SK Siltron, and
France’s Soitec [5].
Figure 3. Principal silicon wafer producers and market share in 2021.
(b) Design. The typical design phase of a digital IC includes architectural or system-
level design, logic design, circuit design, functional safety, physical design, post-design
verification and, finally, preparation of photolithographic masks for the next stage of man-
ufacturing. All these steps are supported by highly sophisticated computer-aided design
(CAD) or electronic design automation (EDA) tools, which provide integrated simulation
environments and automation, with optimization capabilities to meet IC design specifica-
tions in terms of performance, power consumption, area, etc. Digital designs take ad-
vantage of more scaled-up technology nodes, while analog and automotive applications
adopt more mature, reliable, and robust nodes.
The global EDA market is monopolized by three major companies, as shown in Figure
4: Synopsys and Cadence, from the U.S., and Siemens EDA, from Germany (which acquired
U.S. Mentor Graphics in 2017). Each company’s portfolio is very rich, but each has its own
peculiarities. Synopsys focuses on digital chip design, static timing verification and confir-
mation, and System in Package support, neglecting complete process tools. Cadence focuses
on analog and mixed-signal platforms and digital back-ends. Siemens EDA focuses on back-
end verification, testability design, and optical proximity correction.
29.4
21.9
15.2
11.5
11.4
5.5
Shin-Etsu
Sumco
GlobalWafers
Siltronic
SK Siltron
Soitec
Figure 3. Principal silicon wafer producers and market share in 2021.
(b)
Design
. The typical design phase of a digital IC includes architectural or system-
level design, logic design, circuit design, functional safety, physical design, post-design
verification and, finally, preparation of photolithographic masks for the next stage of
manufacturing. All these steps are supported by highly sophisticated computer-aided
design (CAD) or electronic design automation (EDA) tools, which provide integrated
simulation environments and automation, with optimization capabilities to meet IC design
specifications in terms of performance, power consumption, area, etc. Digital designs take
advantage of more scaled-up technology nodes, while analog and automotive applications
adopt more mature, reliable, and robust nodes.
The global EDA market is monopolized by three major companies, as shown in
Figure 4: Synopsys and Cadence, from the U.S., and Siemens EDA, from Germany (which
acquired U.S. Mentor Graphics in 2017). Each company’s portfolio is very rich, but each has
its own peculiarities. Synopsys focuses on digital chip design, static timing verification and
confirmation, and System in Package support, neglecting complete process tools. Cadence
focuses on analog and mixed-signal platforms and digital back-ends. Siemens EDA focuses
on back-end verification, testability design, and optical proximity correction.
Chips 2022, 2, FOR PEER REVIEW 5
Figure 4. EDA companies: market share in 2020.
Closing verified digital designs, using EDA tools, requires less and less engineering
effort. In contrast, the availability of well-trained and experienced circuit designers is a
more crucial issue for high-performance analog circuit design, where human knowledge
is still mandatory.
(c) Front-End Fabrication. Identical integrated circuits (each called a die), are fabri-
cated on each wafer in a multistep process, using various techniques and materials (e.g.,
etching, photolithography, material deposition). Some of the most complicated (and ex-
pensive) machines on the planet are used in this step. The global production capacity of
integrated circuits, by location of production facilities, is shown in Figure 5, while the
global percentage capacity of integrated circuits by technology node is summarized in
Table 1. All data refer to 2021.
Figure 5 shows that South Korea, Taiwan, and Japan account for about 60% of global
production capacity [6]. China is expanding rapidly, because the cost of building and op-
erating a plant is lower than in any other nation, but currently about half of its wafer
capacity is controlled by foreign companies (Korea’s SK Hynix and Samsung, and Tai-
wan’s TSMC and UMC) and it does not lead the volume fabrication of advanced nodes,
as Table 1 shows.
Figure 5. Global percentage IC capacity by fab location in 2021 [6].
32.1
23.4
14.0
30.5
Synopsys
Cadence
Siemens EDA
Other
Figure 4. EDA companies: market share in 2020.
Chips 2022, 1 154
Closing verified digital designs, using EDA tools, requires less and less engineering
effort. In contrast, the availability of well-trained and experienced circuit designers is a
more crucial issue for high-performance analog circuit design, where human knowledge is
still mandatory.
(c)
Front-End Fabrication
. Identical integrated circuits (each called a die), are fabri-
cated on each wafer in a multistep process, using various techniques and materials (e.g.,
etching, photolithography, material deposition). Some of the most complicated (and ex-
pensive) machines on the planet are used in this step. The global production capacity of
integrated circuits, by location of production facilities, is shown in Figure 5, while the global
percentage capacity of integrated circuits by technology node is summarized in Table 1. All
data refer to 2021.
Chips 2022, 2, FOR PEER REVIEW 5
Figure 4. EDA companies: market share in 2020.
Closing verified digital designs, using EDA tools, requires less and less engineering
effort. In contrast, the availability of well-trained and experienced circuit designers is a
more crucial issue for high-performance analog circuit design, where human knowledge
is still mandatory.
(c) Front-End Fabrication. Identical integrated circuits (each called a die), are fabri-
cated on each wafer in a multistep process, using various techniques and materials (e.g.,
etching, photolithography, material deposition). Some of the most complicated (and ex-
pensive) machines on the planet are used in this step. The global production capacity of
integrated circuits, by location of production facilities, is shown in Figure 5, while the
global percentage capacity of integrated circuits by technology node is summarized in
Table 1. All data refer to 2021.
Figure 5 shows that South Korea, Taiwan, and Japan account for about 60% of global
production capacity [6]. China is expanding rapidly, because the cost of building and op-
erating a plant is lower than in any other nation, but currently about half of its wafer
capacity is controlled by foreign companies (Korea’s SK Hynix and Samsung, and Tai-
wan’s TSMC and UMC) and it does not lead the volume fabrication of advanced nodes,
as Table 1 shows.
Figure 5. Global percentage IC capacity by fab location in 2021 [6].
32.1
23.4
14.0
30.5
Synopsys
Cadence
Siemens EDA
Other
Figure 5. Global percentage IC capacity by fab location in 2021 [6].
Figure 5 shows that South Korea, Taiwan, and Japan account for about 60% of global
production capacity [
6
]. China is expanding rapidly, because the cost of building and
operating a plant is lower than in any other nation, but currently about half of its wafer
capacity is controlled by foreign companies (Korea’s SK Hynix and Samsung, and Taiwan’s
TSMC and UMC) and it does not lead the volume fabrication of advanced nodes, as
Table 1 shows.
Table 1. Global percentage IC capacity by technology node in 2021 [7].
<10 nm 10–22 nm 28–45 nm >45 nm
Europe 12% 4% 6%
Americas 43% 6% 9%
Japan 5% 13%
China 3% 19% 23%
Taiwan 92% 28% 47% 31%
South Korea 8% 5% 6% 10%
Other 9% 13% 8%
The front-end manufacturing process is the most capital-intensive. Most of the fac-
tory’s construction costs are semiconductor manufacturing equipment, with some parts
costing more than $100 million each. ASML of The Netherlands is a world leader in the
production of advanced photolithography systems (Deep Ultraviolet Lithography, DUVL),
and is the only company to have developed the next-generation technique needed for
leading-edge nodes, namely Extreme Ultraviolet Lithography (EUVL). To understand the
effort required to make EUVL possible, one only has to consider that the major foundries
(TSMC, Intel, and Samsung, see Section 2.2) had to invest in ASML for the necessary
financial capacity. Each year, ASML is only able to build a few EUVL machines (31 in 2020),
Chips 2022, 1 155
because of their complexity. ASML is developing the next High NA (numerical aperture)
machine, to be available for early access from 2023.
As a result, building a new semiconductor factory at an advanced node (5 nm) can cost
up to $20 billion, and the cost of designing a new chip (tapeout) is more than
$500 million
.
Table 2 compares the price of a processed wafer, the average cost of designing a chip, and
the days of work required for different nodes. Exponential growth in cost and labor is
observed below 16 nm [8].
High capital costs create barriers to entry or even to staying. We saw that in 2001 the
state-of-the-art in processes was 130 nm, and that 26 companies were capable of producing
that technology (see Figure 6), but that only 2 companies (TSMC and Samsung) were
capable of producing 5-nm processes in 2020. In 2022, Samsung began production of
3-nm nanosheet GAA (Gate All Around) technology [
9
], and it will be soon followed by
TSMC [
10
], which confirmed that mass production of 2-nm process would start in 2025 [
11
].
Chips 2022, 2, FOR PEER REVIEW 7
Figure 6. Number of companies with leading-edge manufacturing capabilities versus year of intro-
duction of the technology node.
(d) Back-End Fabrication (Assembly, Test, and Packaging—ATP). Several steps are
required to obtain a finished chip. Firstly, an Optical/E-beam inspection of the wafer is
conducted, to identify defects—such as metal shorts (up to 10 nm and 3 nm, respec-
tively)—and eventually repair them. Secondly, a Wafer Probe/Test, which is the first time
that the chips are tested to see if they work as designed: highly accurate non-destructive
measurement of a test element group (TEG)—including transistors, interconnects and
other devices—is conducted through a probe board that interfaces the wafer and the test
equipment.
Thirdly, Wafer Dicing (individual cuts are made on the wafers). Fourthly, Die Bond
(the process of attaching the bare die to a substrate, which provides electrical connectivity
to the outside, and to the base of the package). Fifthly, Wire Bond/Solder Bump, in which
each die pad is connected to a corresponding pad on the substrate via a thin gold wire, or
through flip chip technology. Sixthly, encapsulation, when the die is packed. Finally, testing,
to detect defects that may have occurred during the assembly process; an integrated circuit
socket is used in the final testing, which plays the crucial role of connecting the device to the
tester, similar to a probe board in wafer testing. Each individual integrated circuit must be
tested with a custom test socket.
Automated Test Equipment (ATE) is a computerized machine that uses test tools to
perform and evaluate the results of functionality, performance, quality, and stress tests
performed on integrated circuits. The ATE requires minimal human interaction, and is
directly responsible for ensuring not only that the IC functions as intended, but also that
the IC does not cause hazards as a result of its use. The growth of the ATE market is driven
by the significant use of test equipment in the automotive industry, which utilizes, among
other things, microcontrollers, sensors, and radar chips, and which has ‘Zero Defects’
goals, to ensure very high levels of reliability and safety in automobiles. This means that
integrated circuit manufacturers are shifting their specifications from defects per million
to defects per billion (DPB) [13]. Teradyne (U.S.), LTX–Credence–Xcerra (U.S.), and Ad-
vantest (Japan) hold the majority of the ATE global market share. The probe cards market
is dominated by FormFactor (U.S.), Technoprobe (Italy), and Micronics (Japan).
Semiconductor packaging technology has evolved to minimize costs and improve
the overall performance of integrated circuits (counteracting heating, mechanical damage,
radio frequency noise emission, electrostatic discharge, etc.), while providing higher
speeds, smaller footprints, higher pin counts, and lower profiles. The semiconductor pack-
aging market is under constant pressure to provide innovative solutions, in terms of size,
performance, and ‘time-to-market’. The market is moderately fragmented, with no domi-
nant players, but is mainly concentrated in East Asia, due to lower labor costs. Taiwanese
companies hold about 50% of the global market for Outsourced Semiconductor Assembly
and Testing services (OSAT). Taiwan’s ASE is the world’s largest supplier, with more
Figure 6.
Number of companies with leading-edge manufacturing capabilities versus year of intro-
duction of the technology node.
Despite Intel’s aggressive roadmap to recover lost positions, leading technologies are
dominated by the two Asian companies. In 2021, TSMC produced 92% of global logic
ICs [12].
Table 2. Wafer cost, chip cost, and labor requirements for different technology nodes [8].
Technology
Node (nm)
Foundry Sale Price
per Wafer ($)
Average Chip
Design Cost
(Million $)
Person Days
(×1000)
65 1937 28 45
40 2274 36 58
28 2891 40 80
22 3677 69 110
16 3984 104 166
10 5992 174 278
7 9346 297 475
5 16,988 540 864
(d)
Back-End Fabrication
(Assembly, Test, and Packaging—
ATP
). Several steps are
required to obtain a finished chip. Firstly, an Optical/E-beam inspection of the wafer is
conducted, to identify defects—such as metal shorts (up to 10 nm and 3 nm, respectively)—and
eventually repair them. Secondly, a Wafer Probe/Test, which is the first time that the chips
are tested to see if they work as designed: highly accurate non-destructive measurement
Chips 2022, 1 156
of a test element group (TEG)—including transistors, interconnects and other devices—is
conducted through a probe board that interfaces the wafer and the test equipment.
Thirdly, Wafer Dicing (individual cuts are made on the wafers). Fourthly, Die Bond
(the process of attaching the bare die to a substrate, which provides electrical connectivity
to the outside, and to the base of the package). Fifthly, Wire Bond/Solder Bump, in which
each die pad is connected to a corresponding pad on the substrate via a thin gold wire,
or through flip chip technology. Sixthly, encapsulation, when the die is packed. Finally,
testing, to detect defects that may have occurred during the assembly process; an integrated
circuit socket is used in the final testing, which plays the crucial role of connecting the
device to the tester, similar to a probe board in wafer testing. Each individual integrated
circuit must be tested with a custom test socket.
Automated Test Equipment (
ATE
) is a computerized machine that uses test tools to
perform and evaluate the results of functionality, performance, quality, and stress tests
performed on integrated circuits. The ATE requires minimal human interaction, and is
directly responsible for ensuring not only that the IC functions as intended, but also that the
IC does not cause hazards as a result of its use. The growth of the ATE market is driven by
the significant use of test equipment in the automotive industry, which utilizes, among other
things, microcontrollers, sensors, and radar chips, and which has ‘Zero Defects’ goals, to
ensure very high levels of reliability and safety in automobiles. This means that integrated
circuit manufacturers are shifting their specifications from defects per million to defects per
billion (DPB) [
13
]. Teradyne (U.S.), LTX–Credence–Xcerra (U.S.), and Advantest (Japan)
hold the majority of the ATE global market share. The probe cards market is dominated by
FormFactor (U.S.), Technoprobe (Italy), and Micronics (Japan).
Semiconductor packaging technology has evolved to minimize costs and improve
the overall performance of integrated circuits (counteracting heating, mechanical damage,
radio frequency noise emission, electrostatic discharge, etc.), while providing higher speeds,
smaller footprints, higher pin counts, and lower profiles. The semiconductor packaging
market is under constant pressure to provide innovative solutions, in terms of size, per-
formance, and ‘time-to-market’. The market is moderately fragmented, with no dominant
players, but is mainly concentrated in East Asia, due to lower labor costs. Taiwanese
companies hold about 50% of the global market for Outsourced Semiconductor Assembly
and Testing services (
OSAT
). Taiwan’s ASE is the world’s largest supplier, with more than
24% of the market, followed by Amkor (U.S.), JCET (China), and SPIL (Taiwan). These
companies hold about 70% of the market share. In addition, Malaysia accounts for more
than 10% of the global packaging trade.
Initially, OSAT companies required significantly less investment in plant, equip-
ment, EDA tools, and R&D than foundries and IDMs, but their profit margins were also
lower. This picture changed substantially with the advent of the system-in-a-package
approach, particularly 3D Flip Chip. InFO (Integrated Fan-Out) packaging is a wafer-level
system-integration technology platform, featuring high-density RDL (Redistribution Lay-
ers) and TIV (Through InFO Via) for high-density interconnect, which requires complex
and expensive processes. In this framework, chip-on-wafer-on-substrate (CoWoS) technol-
ogy and chiplets will strongly influence the advanced development of high-performance
computing [14].
(e)
Product manufacturing.
Finished chips are sent or sold to electronics manufactur-
ers, or other types of manufacturers, and are incorporated into products. In the past, most
large-scale electronics manufacturing was handled by in-house assembly. The division
of labor in the electronics industry has led to the emergence of electronics manufactur-
ing services (
EMS
) or electronics contract manufacturing (
ECM
) companies. These new
companies offer flexibility and large economies of scale in manufacturing, raw material
sourcing and resource sharing, industrial design expertise, and the creation of value-added
services, such as warranty and repair. This market is dominated by Taiwanese companies
Foxconn (Hon Hai), Pegatron, and Wistron (all three being contract manufacturers for Ap-
ple). Foxconn—which also produces products for Amazon, Cisco, Dell, Nintendo, Nokia,
Chips 2022, 1 157
Acer, Xiaomi, etc.—has 12 plants in China, where it is the largest private employer, with
about 1.3 million employees [15].
At this final stage, printed circuit boards (PCBs) are also needed in almost all electronic
products, to secure integrated circuits in specific locations, and to provide reliable electrical
connections between component terminals. PCBs can be produced in-house by many large
companies, or they can be outsourced.
(f)
Sales.
IC components, as well as final products with IC content, are sold
to consumers.
2.2. Types of Semiconductor Companies
In the past, semiconductor companies’ production facilities were mostly in-house: that
is, almost the entire process, from research and design to assembly and testing. In the early
2000s, profit margins were low at semiconductor companies, with most generating returns
below the cost of capital; therefore, due to financial and time-to-market constraints, IC
manufacturing companies began to outsource segments of their manufacturing operations
to subcontractors. Today, we can find companies that design integrated circuits, and may
or may not produce their own chips, and companies that produce chips but may or may
not design them. All these companies can be identified primarily in
fabless
,
IDM
, and
foundry, as specified below.
An
Integrated Device Manufacturer
(
IDM
) carries out chip design, fabrication, and
ATP in-house. IDMs include Intel (whose CEO, Pat Gelsinger, recently shared his IDM2.0
vision for the company [
16
]), IBM, Samsung, NEC, SK Hynix, Micron, Texas Instruments,
Toshiba, Sony, STMicroelectronics, NXP, and Onsemi. IDMs can also provide contract
fabrication services for other firms, or can a outsource consistent part of their production
cycles to ‘pure-play foundries’, or simply foundries, like TSMC, Samsung Foundry, UMC,
GlobalFoundries, and SMIC.
A
fabless
semiconductor company, on the other hand, focuses exclusively on chip
design, and outsources the various manufacturing steps to foundries and IDMs (to pro-
duce the designed chips), to OSAT (to assemble, package, and test the chips), and to EMS
companies (to integrate the packaged chips into devices). Examples of fabless companies
include Broadcom, Qualcomm, AMD, Media Tek, Nvidia, and Xilinx. Fabless semiconduc-
tor companies need less capital, and have generally higher and less volatile profit margins
than IDMs, but quality control and ensuring on-time production can be an issue for them.
Between IDMs and fabless, a
fab-lite
semiconductor manufacturing model allows in-house
production targeted only at specific low-cost technology nodes that are still in high demand.
In this list, we can also include large technology companies that have the economic
ability and convenience to design their own chips in-house for their specific applications,
for competitive differentiation, preventing replication and ensuring consistency across
different devices [
17
]. For example, Apple develops custom chips for the iPhone and
iPad, Facebook (now Meta) designs chips optimized for the types of content it stores and
processes on its servers, Amazon’s Graviton and Inferentia and Google’s (now Alphabet)
Tensor Processing Unit (TPU) are AI-based IC accelerators for cloud computing, and Tesla
has developed the D1 Dojo Chip to train AI models. It may sound surprising, but Apple
can be considered the third largest fabless player in the world, behind Broadcom and
Qualcomm. Moreover, besides Tesla, many automakers are collocating semiconductor
engineers to develop new chips. They are understood to be part of the semiconductor
industry, as the average IC content per vehicle will exceed $1000 by 2026 [18].
IC designers often rely on other companies (sometimes referred to as design houses) for
IP cores, which are reusable units of logic design, cells, or IC layout (software) that are the
‘intellectual property’ of one party, and can be licensed to another party. This is especially
true for start-ups that, due to limited resources, focus their efforts on a specific design
with unique features, while referring to
IP cores
for standard functions. IP cores include
CPUs, GPUs, embedded memory compilers, interface, and interconnect technologies. The
semiconductor IP market is dominated by three companies that cover more than twothirds
Chips 2022, 1 158
of the market: ARM (UK-based), with a share of more than 40%, Synopsys (U.S.), and
Cadence (U.S.).
Figure 7 summarizes the types of companies that form the complete IC ecosystem.
Research is not explicitly included in this diagram, because in almost all cases it comes from
specific departments in the companies, and from government-funded institutions and aca-
demic laboratories. No other industry has the same intensity of R&D: about 22% of annual
sales ($90 billion), compared to the 21% of the pharmaceutical and biotechnology sector.
Chips 2022, 2, FOR PEER REVIEW 9
margins than IDMs, but quality control and ensuring on-time production can be an issue
for them. Between IDMs and fabless, a fab-lite semiconductor manufacturing model al-
lows in-house production targeted only at specific low-cost technology nodes that are still
in high demand.
In this list, we can also include large technology companies that have the economic
ability and convenience to design their own chips in-house for their specific applications,
for competitive differentiation, preventing replication and ensuring consistency across
different devices [17]. For example, Apple develops custom chips for the iPhone and iPad,
Facebook (now Meta) designs chips optimized for the types of content it stores and pro-
cesses on its servers, Amazon’s Graviton and Inferentia and Google’s (now Alphabet)
Tensor Processing Unit (TPU) are AI-based IC accelerators for cloud computing, and Tesla
has developed the D1 Dojo Chip to train AI models. It may sound surprising, but Apple
can be considered the third largest fabless player in the world, behind Broadcom and
Qualcomm. Moreover, besides Tesla, many automakers are collocating semiconductor en-
gineers to develop new chips. They are understood to be part of the semiconductor indus-
try, as the average IC content per vehicle will exceed $1000 by 2026 [18].
IC designers often rely on other companies (sometimes referred to as design houses)
for IP cores, which are reusable units of logic design, cells, or IC layout (software) that are
the ‘intellectual property’ of one party, and can be licensed to another party. This is espe-
cially true for start-ups that, due to limited resources, focus their efforts on a specific de-
sign with unique features, while referring to IP cores for standard functions. IP cores in-
clude CPUs, GPUs, embedded memory compilers, interface, and interconnect technolo-
gies. The semiconductor IP market is dominated by three companies that cover more than
twothirds of the market: ARM (UK-based), with a share of more than 40%, Synopsys
(U.S.), and Cadence (U.S.).
Figure 7 summarizes the types of companies that form the complete IC ecosystem.
Research is not explicitly included in this diagram, because in almost all cases it comes
from specific departments in the companies, and from government-funded institutions
and academic laboratories. No other industry has the same intensity of R&D: about 22%
of annual sales ($90 billion), compared to the 21% of the pharmaceutical and biotechnol-
ogy sector.
Figure 7. The ecosystem of semiconductor companies.
Figure 7. The ecosystem of semiconductor companies.
2.3. Remarks
In recent years, application domains have evolved from divergent, in which less so-
phisticated products with specific and minimal functions have been developed (e.g., cell
phones or cars used only for communication and transportation, respectively), to conver-
gent, in which the technological convergence of data processing, telecommunications, and
energy management is fully exploited (e.g., in smartphones or smart cars). In parallel,
the semiconductor industry’s value chain has shifted from a vertical integration model, in
which four of the six stages of the chain discussed earlier (with the exception of wafer and
product fabrication) were carried out in-house and integrated, to a vertical disintegration
model, in which specialized companies have emerged for each stage. This business model
was motivated by the rapid advancement of technology, with the continuous reduction in
chip size and the diversification of device features through special processes, which led to
an exponential increase in the design complexity and manufacturing costs of integrated cir-
cuits. This business model has also benefited from the global economy, which has required
the integration of markets above geopolitical divergences.
Both the converging application domains and the vertical disintegration model pro-
mote supply chain disruption. In fact, a system that incorporates an increasing number of
chips is increasingly exposed to a shortage, because it cannot be completed for the lack of
even one chip. In contrast, a long, often monopolistic, globally dispersed supply chain can
be easily disrupted by a single social or geopolitical event. All these aspects are explored in
the following.
Chips 2022, 1 159
3. Supply Chain Bottlenecks, Global Shortages, and Counteracting Measures
It can be understood from Section 2.3 that the semiconductor supply chain is extremely
fragile, and has several bottlenecks that can facilitate disruptions. In addition, the 2020
COVID-19 pandemic and the U.S.–China trade war highlighted and accelerated many of
these problems, quickly causing a chip shortage that persists to this day. The shortage,
along with economic and military conflicts, has convinced companies and governments
to take action. The bottlenecks, the causes of the silicon shortage, and some industry and
government responses are discussed below.
3.1. Bottlenecks
We have seen that there are only a few companies, or even one, that dominate the
entire global market. Samsung and Intel lead the overall semiconductor market, TSMC the
foundry sector for cutting-edge nodes (<10 nm), Qualcomm and Nvidia the fabless sector,
ASML the manufacturing of EUVL machinery, ARM the design of IP cores, FormFactor
and Technoprobe the probecard market, Foxconn the manufacturing of products, etc. In
addition, geographic regions, or even a single country, have specialized in the production
of certain raw materials (for example, in 2021, China supplied more than 85% of the world’s
refined Rare Earth Elements, followed by the rest of Asia at 13%, and Europe at 2%), or in
specific manufacturing processes and technologies. Due to the lockdown of factories, many
OSAT companies accumulated orders. The average lead time for packaging was 8 weeks,
pre-COVID; now it is 20 weeks (and can even be 50 weeks for prototypes).
In general, Figure 1 shows that East Asia supplies more than 75% of global IC produc-
tion capacity (led by Samsung, TSMC, and SK Hynix [
2
]), and is the hub of semiconductor
manufacturing, including ATEs, wafers, and IC substrates. This dominance is expected to
grow, especially with increased investment in China by foreign and domestic companies,
and government engagement. The U.S. has lost its primacy in IC manufacturing (from 37%
in 1990 to 12% today), and also, partially, in leading research (European R&D front-runners
in semiconductor technologies are IMEC, CEA-Leti, and the Fraunhofer Institute-FMD),
but the U.S. still leads global chip sales, as the last available data of 2021 from SIA show [
19
],
and as summarized in Figure 8. The success of the U.S. is due to its engineering workforce,
even if the U.S. position has declined slightly in recent years, with a parallel increase in
China (whose global chip sales figures are close to those of Taiwan, and also to Europe
and Japan).
Chips 2022, 2, FOR PEER REVIEW 11
its engineering workforce, even if the U.S. position has declined slightly in recent years,
with a parallel increase in China (whose global chip sales figures are close to those of
Taiwan, and also to Europe and Japan).
Figure 8. Global chip sales in 2021.
3.2. The Pandemic and Other Calamitous Events
The vulnerability of the supply chain became clear during the COVID-19 pandemic
of 2020 and the two years that followed, when cities or entire countries shut down or se-
verely slowed production. China’s ‘zero-COVID policy’ led to a total shutdown of activi-
ties for weeks (it seems, however, that SMIC was not stopped in Wuhan city during the
first block in 2020, nor in Shanghai city in 2022 [20,21]). However, the scenario was also
exacerbated by events such as:
(a) the worst drought in Taiwan in 56 years, in 2021 (chip makers use large amounts of
ultra-pure water to clean factories and wafers) [22].
(b) fires in plants (an Asahi Kasei semiconductor plant, in October 2020; a Renesas Elec-
tronics—which supplies 30%of the global market for microcontrollers used in auto-
mobiles—plant in March 2021 [23], and ASML’s Berlin plant, producing EUVL equip-
ment, in January 2022 [24]).
(c) winter storms (forcing the closure of two Samsung and NXP semiconductor plants
for several months in 2021, in Austin, Texas [25]).
All of these causes combined, along with the increased demand for integrated cir-
cuits, have repeatedly and at multiple points disrupted the chain, preventing global chip
production from meeting the demands of the different types of industries, of which there
are 169, according to a Goldman Sachs study which included industries that spend more
than 1% of their Gross Domestic Product on chips.
The pandemic played a primary role in initiating the 2020 chip shortage for the auto-
motive industry, as the global lockdown initially reduced personal mobility and demand
for cars and, consequently, the automotive industry’s demand for chips. At the same time,
the pandemic has accelerated digital transformation and the adoption of remote work,
remote study, movie streaming, and e-commerce technologies worldwide, greatly in-
creasing semiconductor demand in the consumer, telecommunications, and personal
computer sectors. For example, in the fourth quarter of 2020, sales of mainstream comput-
ers grew 26.1% year-on-year. As a result, chip makers shifted their production to where
demand was strongest, and failed to meet the needs of the automotive industry, which
recovered rapidly, and sooner than expected.
46%
21%
9%
9%
8%
7%
U.S.
S. Korea
Japan
EU
Taiwan
China
Figure 8. Global chip sales in 2021.
Chips 2022, 1 160
3.2. The Pandemic and Other Calamitous Events
The vulnerability of the supply chain became clear during the COVID-19 pandemic of
2020 and the two years that followed, when cities or entire countries shut down or severely
slowed production. China’s ‘zero-COVID policy’ led to a total shutdown of activities for
weeks (it seems, however, that SMIC was not stopped in Wuhan city during the first block
in 2020, nor in Shanghai city in 2022 [
20
,
21
]). However, the scenario was also exacerbated
by events such as:
(a)
the worst drought in Taiwan in 56 years, in 2021 (chip makers use large amounts of
ultra-pure water to clean factories and wafers) [22].
(b)
fires in plants (an Asahi Kasei semiconductor plant, in October 2020; a Renesas
Electronics—which supplies 30%of the global market for microcontrollers used in
automobiles—plant in March 2021 [
23
], and ASML’s Berlin plant, producing EUVL
equipment, in January 2022 [24]).
(c) winter storms (forcing the closure of two Samsung and NXP semiconductor plants for
several months in 2021, in Austin, Texas [25]).
All of these causes combined, along with the increased demand for integrated circuits,
have repeatedly and at multiple points disrupted the chain, preventing global chip produc-
tion from meeting the demands of the different types of industries, of which there are 169,
according to a Goldman Sachs study which included industries that spend more than 1%
of their Gross Domestic Product on chips.
The pandemic played a primary role in initiating the 2020 chip shortage for the
automotive industry, as the global lockdown initially reduced personal mobility and
demand for cars and, consequently, the automotive industry’s demand for chips. At the
same time, the pandemic has accelerated digital transformation and the adoption of remote
work, remote study, movie streaming, and e-commerce technologies worldwide, greatly
increasing semiconductor demand in the consumer, telecommunications, and personal
computer sectors. For example, in the fourth quarter of 2020, sales of mainstream computers
grew 26.1% year-on-year. As a result, chip makers shifted their production to where demand
was strongest, and failed to meet the needs of the automotive industry, which recovered
rapidly, and sooner than expected.
Automakers cannot return to pre-2020 supply levels, and the problem will continue
in the coming years, with components such as microcontrollers, image sensors, power-
management units, power MOSFETs, and display drivers. Many automakers are therefore
delaying vehicle deliveries, and suspending new orders for some models, to reduce pro-
duction due to the global chip shortage. General Motors said in November 2021 that it
would temporarily suspend the inclusion of heated and ventilated seats in several models,
although it was working on a plan to retrofit those vehicles when parts became available.
In the first seven months of 2022, automakers in North America skipped the assembly of
more than 1 million vehicles [26].
Eight major Japanese automakers said they had assembled about 3.4 million vehicles
in the first half of 2022—down more than 14% from the previous year. The world’s largest
automaker, Toyota (based in Japan), reported a 31% drop in profits in the January–March
quarter, compared with the same period a year earlier, and cut its production plans in
June 2022 by “tens of thousands of units globally”; it also announced the suspension of
production at various times in May and June, due to a shortage of spare parts caused by
the pandemic lockout in Shanghai [27].
According to the Society of Motor Manufacturers and Traders (SMMT), U.K. car
production shrank by onethird (32.4%) in the first three months of 2022, with nearly
100,000 fewer cars
than in the same period last year. Jaguar Land Rover’s latest financial
results for 2022 revealed a loss of more than £500 million for the British company, despite a
record order book [28,29].
The automotive sector exploits stable, mature semiconductor processes. But the
chip shortage also affected more advanced nodes for consumer, industrial, and medical
device manufacturing industries, with products such as video game consoles, graphic
Chips 2022, 1 161
cards (the rise of cryptocurrency mining in 2021 has further boosted demand), memories,
and processors.
3.3. U.S.–China Trade War
Other important reasons that have exacerbated the chip shortage are related to U.S.
sanctions against China, which have caused a reduction in global production capacity, and
an increase in inventories for Chinese companies. The case of Huawei is a clear example.
Huawei has been accused by the United States of putting backdoors in its equipment,
that could be exploited for espionage purposes. In 2019, Huawei was blacklisted by the
U.S., and placed on the so-called ‘Entity List’, which prohibits American companies (such
as Google with its Android operating system) from exporting specific technologies to
companies on the list. In 2020, Huawei was not able to source the cutting-edge chips it
needed for its smartphones, because the U.S. was preventing Chinese companies from
using advanced EDA tools and foundry services from companies (e.g., TSMC) that exploit
U.S. intellectual property. Huawei, and many other Chinese companies on the Entity List,
therefore had three to six months of chip inventories with which to try to secure their
business [
30
]; however, Huawei founder, Ren Zhengfei, recently warned of tough times
ahead for the firm, and committed to ensuring its survival [31].
Filling inventories reduced the number of chips available on the market in parallel
with the onset of the pandemic. In addition, Chinese foundries and IDMs were unable
to purchase new EUVL machines from ASML. In fact, in 2020, the U.S. forced the Dutch
government to ban the export of ASML’s EUVL machines to China, because ASML also uses
American intellectual property, according to Washington’s arguments (and the U.S. is now
pushing to also ban the export of mainstream machines [
32
]). In August 2022, the Bureau
of Industry and Security of the U.S. Department of Commerce issued a new provisional
rule on a wider range of technologies export restrictions, although not mentioning China
directly, and involving technologies for substrates of gallium oxide (Ga
2
O
3
) and diamonds,
as well as EDA software “specially designed for the development of integrated circuits with
Gate-All-Around Field-Effect Transistor (GAAFET) structure”, used to design 3-nm and
more advanced chips. While the U.S. wished to maintain an economic edge, its primary
motivation was military, as advanced chips are used in advanced weapons.
3.4. Response of Companies and Governments to the Chip Shortage
The semiconductor industry has responded to the shortage of and the rapid increase
in demand for chips, with a substantial increase in capital expenditures to support plans to
build new fabs and, thus, to increase global chip production capacity in the near future. The
most significant example is TSMC, which will increase capital spending from $30 billion in
2021 to $44 billion in 2022, and to a total of $100 billion in three years [33].
Intel has announced the construction of a 1000-acre mega chip production site in
Ohio, with an initial build-out of two fabs of more than $20 billion [
34
]. Intel has also
announced that it plans to spend more than $36.2 billion to build new semiconductor
manufacturing facilities and research centers in the EU. According to the company, total
investment could reach 80 billion euros over the next decade. Micron Technology has also
announced that it plans to invest $40 billion in its U.S. manufacturing operations through
to the end of the decade [
35
], while China’s largest semiconductor company, SMIC, has
invested an average of $9.5 billion over the 2021–2022 period [
36
]. These are just a few
examples that demonstrate the industry’s large investments in cutting-edge and in more
mature technologies around the world.
In this context, manufacturers have also received, or will receive, external funding
through government programs. Indeed, governments in several major economies are trying
to incentivize local chip design, research, and especially chip production. For example,
in 2014, China was the first to start providing government subsidies to its semiconductor
ecosystem; these subsidies, it is estimated, will be around $100 billion by 2030. This has
Chips 2022, 1 162
had, and will continue to have, an impact on chip supply, but most likely only for less
advanced nodes, even if SMIC recently announced that it is able to process 7-nm chips [
37
].
The European Chips Act is a legislative proposal that would allocate more than 43
billion euros to the integrated circuit industry [38].
The U.S. CHIPS and Science Act aims to restore U.S. leadership in chip production,
including for leading-edge technologies [
39
]. It has allocated about $52.7 billion in subsidies
for companies building additional semiconductor fabs in the U.S., with $2 billion of the
total to be used to build additional capacity for legacy chips, and about $13.2 billion also
available for R&D and workforce development programs.
The Indian government, in December 2021, launched an incentive program, worth
about $10 billion, to attract international semiconductor and display manufacturers, and to
make the country a global manufacturing hub [40].
TSMC has also announced its plans for further investment in the United States and
Japan, and potentially in the EU in the future [
41
]. Noteworthy is the construction of a 5-nm
factory (Fab 21), completed in Arizona in July 2022. Similarly, Foxconn recently announced
its plan to invest in India [
42
]. All such countermeasures, however, must take into account
the current socioeconomic and geopolitical situation, and the changing scenarios that are
unfolding. In addition, subsidizing the current industry could make it harder for potentially
more innovative start-ups to be successful. The biggest gains for the U.S. chip industry
come from disruptive new technologies replacing old ones, as the history of Intel has
demonstrated [43].
4. Analysis and Perspectives
The semiconductor industry has grown over the past two decades, at an average of
8.5% per year (see Figure 9, which shows an exponential market growth, as the vertical axis
is logarithmic), fundamentally because
the industry’s extraordinary efforts have been
based on strong and open scientific, technological, and commercial cooperation
with
both the global market and the supply chain, albeit with all the critical issues highlighted
for the latter. In the semiconductor ecosystem, the capital-intensive segment of the fabs
(especially for the extreme technology nodes) was hence separated from that of the IC
design, so that fabless and fab-light houses could potentially generate a greater revenue.
The packaging step—once responsible for only a few percent of the final chip cost—became
more and more sophisticated, especially for systems in a package (SIP), and for advanced
RF chips, and was separated and specialized; furthermore, being the most labor-intensive,
and often based in low-cost countries such as China or Malaysia, it was also favored by
manufacturing incentives offered by the governments.
Chips 2022, 2, FOR PEER REVIEW 14
revenue. The packaging step—once responsible for only a few percent of the final chip
cost—became more and more sophisticated, especially for systems in a package (SIP), and
for advanced RF chips, and was separated and specialized; furthermore, being the most
labor-intensive, and often based in low-cost countries such as China or Malaysia, it was also
favored by manufacturing incentives offered by the governments.
Figure 9. Global semiconductor market from 1987 to 2022 (solid line), compared to a constant 8.5%
year-on-year growth (dashed line).
This ecosystem, highly dependent on business cooperation among nations, produced
a relatively stable market, where most of the demand came from consecutive killer appli-
cations such as computers, smartphones, and now automotive and industrial IoT. Because
of this stability, the oversight of supply chain inventory, production, sales, and even R&D
was quite predictable, and the scalability of technology nodes was ‘only’ a matter of re-
ducing optical size while keeping the transistor structure almost unchanged. Within this
framework, semiconductor shortages have occurred cyclically, sometimes due to the
emergence of a new killer application or exacerbated by external shocks, such as the tech-
nology bubble or the 2009 recession. In general, however, cycles from underproduction to
overproduction have been repeatedly observed in leading-edge ICs and memory ICs. In
the alternation of these semiconductor cycles, large fabless companies did not take on real
financial risks and stresses. Even the risks were outsourced to foundries and, ultimately,
to TSMC, which became the single supplier.
However, the semiconductor ecosystem is undergoing a dramatic change in its struc-
ture, for a number of important concomitant reasons that will be discussed in the remain-
der of this section; these reasons open up new scenarios in terms of market growth and
opportunities, but also present potential dangers, and require the development of new
policies and business models.
4.1. Unprecedented Market Growth and Profitability
We begin this analysis by observing an unprecedented level of demand for ICs, driven
by AI, 5G, IoT, health, and automotive applications. 2017 and 2021 were record years for
the semiconductor industry, with 22% and 25% year-on-year improvement [44,45].
2018 was identified as the year when the amount of data generated by humans was
equaled and surpassed by that generated by machines, which has since grown exponen-
tially [46].
Of course, data must be transmitted, processed, and stored electronically, with spe-
cific integrated circuits. The high demand for semiconductors has only been exacerbated
by the pandemic, but stems from the sudden increase of all these new applications that
require, and for many years will require, much greater capacity from the manufacturing
Figure 9.
Global semiconductor market from 1987 to 2022 (solid line), compared to a constant 8.5%
year-on-year growth (dashed line).
Chips 2022, 1 163
This ecosystem, highly dependent on business cooperation among nations, produced
a relatively stable market, where most of the demand came from consecutive killer applica-
tions such as computers, smartphones, and now automotive and industrial IoT. Because of
this stability, the oversight of supply chain inventory, production, sales, and even R&D was
quite predictable, and the scalability of technology nodes was ‘only’ a matter of reducing
optical size while keeping the transistor structure almost unchanged. Within this frame-
work, semiconductor shortages have occurred cyclically, sometimes due to the emergence
of a new killer application or exacerbated by external shocks, such as the technology bubble
or the 2009 recession. In general, however, cycles from underproduction to overproduction
have been repeatedly observed in leading-edge ICs and memory ICs. In the alternation
of these semiconductor cycles, large fabless companies did not take on real financial risks
and stresses. Even the risks were outsourced to foundries and, ultimately, to TSMC, which
became the single supplier.
However, the semiconductor ecosystem is undergoing a dramatic change in its struc-
ture, for a number of important concomitant reasons that will be discussed in the remainder
of this section; these reasons open up new scenarios in terms of market growth and oppor-
tunities, but also present potential dangers, and require the development of new policies
and business models.
4.1. Unprecedented Market Growth and Profitability
We begin this analysis by observing an unprecedented level of demand for ICs, driven
by AI, 5G, IoT, health, and automotive applications.
2017 and 2021 were record years for
the semiconductor industry, with 22% and 25% year-on-year improvement [44,45].
2018 was identified as the year when the amount of data generated by humans
was equaled and surpassed by that generated by machines, which has since grown
exponentially [46].
Of course, data must be transmitted, processed, and stored electronically, with specific
integrated circuits. The high demand for semiconductors has only been exacerbated by the
pandemic, but stems from the sudden increase of all these new applications that require,
and for many years will require, much greater capacity from the manufacturing industry.
The scenario is radically different from the usual alternating inventory cycles seen above.
In addition, the advent of AI, IoT, and autonomous vehicles requires the integrated circuit
industry to be more flexible, more focused on R&D, and with shorter production times.
Moreover, increased demand is leading to a resurgence of integrated circuit design start-
ups, and perhaps more importantly, many big technology and automotive companies have
begun to design chips in-house. The semiconductor industry has been faced with a
new
type of competitor.
4.2. Technological Breakpoints
Another major deal-breaker is the fact that, as we approach the atomic scale, optical
shrinking techniques no longer work. In other words,
the scaling road map is no longer
marked
. For each new nanoscale generation, new paths have to be worked out in terms
of materials, processes, and transistor architecture. Every technological advance requires
exponentially increasing expenditures in R&D, plant, machinery, and tools, which explains
why there are only a few state-of-the-art foundries in the world today. Another observation
needs to be made, about the
breaking of the link between mature and leading nodes
.
The state-of-the-art in lithography has moved to 7, 5, and 3 nm, while microcontrollers,
analog, IoT, and automotive, because of the functionality and reliability needed, are still
implemented at 40–180 nm. As a result, when the next node is released, the previous one
does not find suitable applications, contributing to increased foundry risks.
Chips 2022, 1 164
4.3. Foundry-Customer Agreements
The huge, high-risk expenditures discussed above can no longer be borne by foundries
alone. Because large fabless companies have a vital need for new technology nodes, fabless
must share these risks with foundries, by entering into
long-term agreements
(LTAs)
or
non-cancelable, non-refundable orders
(NCNRs). Just as ASML required strong co-
investment from its customers to realize EUVL machines, foundries require co-investment
and capacity risk-sharing with their customers, to manage the semiconductor cycles. This
is an indicator of the changing structure of the industry, which also explains TSMC’s
present investment of $100 billion over three years, based on consultation with customers
in anticipation of their needs [10].
At first glance, this radical change that occurs in agreeing on orders should not involve
chipmakers with older technologies. After all, TSMC has a monopoly, while there is much
competition among legacy-node companies. However, the recent chip shortage has shown
that even mature technologies can be in short supply, and has revealed the new power and
privileged position of the foundries, which can now take advantage of NCNR (no longer
accepting the usual just-in-time order policy) with customers who want to ensure constant
supply. Automakers are an example of such customers, who have had to partially abandon
the well-known lean manufacturing system (Toyota’s system) [
47
], aimed at minimizing
inventory, but exposing production to fluctuations in the IC market.
An agreement between chipmakers and automakers (and also with other industries)
is also necessary for another important reason. The majority of automotive and industrial
chips are realized in 40 nm or above, utilizing 200-mm wafers. Therefore, 200-mm wafer
manufacturing is still important for these sectors and, incidentally, also for RF, MEM’s
Analog, and Power Management ICs. Most of the 200-mm fabs are today fully depreciated,
which happens after at least four years of operation, and this means that the manufacturing
cost of a chip made in one of these fabs is very low, and that the final price is (or can be)
very low too. However, the addition of fabrication capacity means that companies have
to build
new 200-mm fabs
(from around 200 fabs worldwide in 2010, to 220 in 2025, as
estimated by SEMI [
48
]) and have to buy new machines and tools to produce chips whose
market price is a fraction of what they would really cost, because they are produced in a
new, non-depreciated fab. It clearly seems uneconomical, and consequently the investment
in foundry is justified if customers sign LTA and NCNR, or if the foundry is supported by
strong government subsidies (many of these new 200-mm fabs are in fact in China), or if
several companies join forces [49]).
4.4. Trade War
Another extremely important factor that is blocking previously observed cooperation
between nations is, of course, the already mentioned U.S.–China trade war. China is cur-
rently the main importer of semiconductors (35% of the global demand for semiconductors),
which cost the country more than foreign crude oil [
50
]. China plans to develop its chip
design and manufacturing industry (reaching 70% onshore chip manufacturing by 2025) by
supporting its industry with large sums of money. In reply, the U.S. government not only
is (perhaps belatedly) replicating this funding policy with the Chip and Science Act, but
is also attempting to set barriers in China’s way to developing advanced semiconductors.
Companies receiving subsidies from the U.S. cannot build advanced (<28 nm) chip fabs
in China.
The U.S. Chip Act tries also to push foreign companies to take sides in the war, in
order to obtain U.S. subsidies, surely affecting small and medium-sized businesses (TSMC
and Samsung are not dependent on U.S. subsides). U.S. House Speaker Nancy Pelosi’s
recent visit to East Asia—particularly South Korea, Taiwan and Japan—was an attempt
to influence adherence to the U.S. geopolitical policy; but the effect of the U.S. bans, as
SMIC and its 7-nm technology has shown, has been
to push Chinese companies to do
even more massive research
. China could also choose to block deals with large U.S. tech
companies such as Qualcomm, Broadcom, and Micron, cutting more than 50% of their
Chips 2022, 1 165
revenues, and further reducing the U.S. market share. As another countermeasure, China
could limit or ban Rare Earth Elements exports to the U.S. and its allies. In fact, U.S.–China
tensions are accelerating the decoupling of the two supply chains and markets, raising
concerns that
Western semiconductor capacity could be oversized
if the Chinese market
is cut off.
4.5. The Ukraine Conflict
The effects of the war on commodity prices, supply chain constraints, and overall
uncertainty will influence chip manufacturers and consumers. Ukraine is not only the
world’s largest supplier of neon gas (70% of global supply)—critical for lasers used in
lithography—but also the world’s largest supplier of xenon and krypton gas, also critical
for chip production [
51
]. Roughly 54% of Ukrainian neon comes from two companies,
Ingas (based in Mariupol) and Cryoin (based in Odessa), both cities highly affected by
Russian attacks. Moreover, Russia holds 40% of the market for palladium, 15% for titanium,
12% for platinum, and 10% for copper, all of which are important for printed circuit boards,
and for sensors and plating processes in chip production, as well as for high-tech products
such as catalytic converters and ion batteries [
52
]. Sanctions imposed on Russia make the
latter an uncertain source for such supplies in the near future [53].
In the short term, the impact of the conflict on semiconductor manufacturing should
be manageable, as the largest foundries have great purchasing power, and access to stocks
that can span two months or more. However, many other smaller companies do not have
this type of reserve. In the medium–long term, the industry may consider making larger
investments—for example, in neon recycling technologies.
Another effect of the conflict has been to create instability in world energy markets,
raising energy costs, and driving oil and gas prices to their highest levels in nearly a decade.
This could have a major impact on chipmakers, depending on local electricity prices. In
fact, large semiconductor factories consume up to 100-MWh of energy per hour [54].
In addition, rising energy and fuel costs, combined with rising inflation, taxes, and
interest rates, are putting pressure on consumers’ disposable income [
55
]. We are already
seeing weakness in semiconductor end markets, particularly those exposed to consumer
spending. After a period of record revenues for chipmakers, peaking in the first quarter of
2022 after five consecutive quarters of record revenues, a slowdown is expected (but not for
data centers and the automotive sectors). In this context, an increase in component prices
due to rising energy costs could amplify market uncertainty.
4.6. Technology Issues vs. Political Goals
One problem that is not being adequately addressed in this context is that many
political actions are taken by
technologically illiterate people
. Examples of policy mistakes
are numerous, and range from U.K. prime minister Theresa May’s satisfaction with the
acquisition of ARM by the Japanese SoftBank group, which was judged to be a good
reaction of the markets in the aftermath of Brexit [
56
,
57
]. According to a study by the U.S.–
China Business Council, the trade policies of former President Donald Trump have cost the
U.S. 245,000 jobs [
58
]. The U.S. Chip Act extends trade limits to 10 years—an enormous
time frame that doesn’t take into account the speed at which semiconductor technology is
advancing. Furthermore, manufacturing costs in the U.S. and the EU are much higher than
in China and Taiwan. Subsidizing the fabs is an attempt to offset these higher costs, but
it does not seem to be adequate. In any case, if technological issues become intertwined
and subordinated to unrelated political goals, then further pressure could be added to an
increasingly fragile relationship, which could lead to military escalation; this could give
mainland China an excuse to renew its threat to attack and annex Taiwan, which separated
from mainland China in 1949. To this end, TSMC Chairman Mark Liu declared in August
2022 that if China were to invade Taiwan, the fabs would be rendered “non-operational”,
implying that “war brings no winners, everyone is a loser” [59].
Chips 2022, 1 166
Another key factor that is not taken into account by the policies of different govern-
ments is the
legal protection of inventions
, something that should be focused on instead
of resorting to blacklists and bans. While large companies have the strength to protect
their intellectual property, the many small businesses and startups that contribute to the
evolution of the art are unable, in the event of litigation, to resort to lengthy and costly
international legal procedures. In this sense, state intervention would be crucial to help
companies to develop and enforce patents.
4.7. Reshoring
In response to trade tensions, many Japanese, South Korean, and Taiwanese manu-
facturers plan to move some or all of their operations out of China [
60
]. In addition, the
disruption of the supply chain is reversing the trend of recent years to relocate, even far
away, in view of significant savings on labor costs. Bringing the production of assembly
components closer (
reshoring
) is a new trend. In this regard,
less and less manpower is
needed
in the new fabs and OSAT services for the high degree of automation. For instance,
the new 300-mm fab of Infineon, which opened in Villach (Austria) in 2021, requires only
400 workers.
4.8. Talent War
Whereas all types of industrial and information engineers are in demand, those that
work on enabling technology should be prioritized. Both research for new lithography
nodes and IC design require an increasing number of
well-educated engineers
, possibly
with a Ph.D., as these activities are talent-intensive. Moreover, we have seen that chip
designers are recently being competed for also by big tech companies and carmakers. In this
context, the continuing shortage of young talent interested in semiconductor engineering is
of great concern, and a talent war is already underway.
China has struggled to find 230,000 more semiconductor engineers by 2022, to meet
its already mentioned targets. TSMC and other chipmakers in Taiwan are working with the
government to strengthen the local semiconductor workforce, by investing $300 million
in new graduate schools for semiconductor chip technology programs [
61
,
62
]. Intel plans
to address the workforce shortage with a $100 million investment over the next decade,
to build a talent pipeline and to support research, education, and workforce development
in the United States. Approximately $50 million of Intel’s investment will go toward
funding grants to Ohio higher education institutions for new undergraduate and graduate
programs, faculty training, laboratory equipment upgrades, research aimed at improv-
ing semiconductor manufacturing, and opportunities for students, including internships.
Lately, Intel and many other companies have been hiring college and undergraduate stu-
dents as a desperate tentative measure, to fill vacancies. Intel airs TV commercials during
soccer games to promote job positions.
In terms of educational global effort and contributions in the field of IC design, the Free
and Open Source Silicon Foundation (FOSSI), [
63
], the free Skywater’s 130nm PDK [
64
], and
the free tapeouts sponsored by Google for low-income countries [
65
] should be mentioned.
This author has already emphasized in [
4
] the urgency of clear and effective infor-
mation campaigns on the role of semiconductor engineers and on the job opportunities
offered by the semiconductor chip industry; he also noted the total absence of the keywords
‘semiconductors’ and ‘electronics’ (either micro- or nano-) in the various analyses and
reports on the professions of the future, and summarized a series of actions to be taken to
reverse the talent shortage [
4
,
66
]. However, this problem also requires industry players
to change their hiring and staffing policies. Currently, salaries for chip-related hardware
research and design are low, compared to Internet companies. Better wages are in fact
needed to make this profession more attractive. Actually, the war for talent has led to
slight
wage increases
, which is inevitable if semiconductor engineers and IC designers are
in short supply and the market needs new fabs with additional labor. The limited, but
Chips 2022, 1 167
significant, data available to the author show that the entry-level salary of an electronic
engineer in Italy has increased by an average of 2.5% every year since 2017 [67].
4.9. Branding
The IC industry now exhibits a structure with high barriers to entry, and significant
pricing power. Selling an IC for the price of a few cents, even if it comes from a depreciated
fab, seems rather unbelievable, if we think of the expensive technology and the knowledge
necessary to produce it. Chip manufacturers should use
value-based pricing
, and avoid
downward quotations if they want to increase revenues, draw investors, and offer better
salaries. This could happen more easily if they do not operate in a stagnant market, but
instead move into emerging and more profitable ones. Working in new markets improves
the company’s reputation, and attracts more customers and talent. The best chipmakers
need to brand themselves.
5. Conclusions
Demand for integrated circuits is steadily rising, due to the emergence of an increasing
number of new applications, supporting exponential market growth that involves both
advanced and mature technology nodes. A general boost in chip production capacity is
being prepared, which in turn requires a new kind of strong commercial agreement between
manufacturers and customers, made possible by the new power position of foundries and
the general consensus that chips are not commodities, but key and strategic elements.
However, if new fabs are built by prior agreement with customers, then labor should also
be secured in advance. New fabs do indeed require new workers and engineers, which
are already in short supply; not to mention that other types of industries are developing
in-house chip design capabilities, and will compete in the talent war. Therefore, it will
be necessary for governments, companies, universities, and associations, to work jointly
on actions such as orientation and communication for young people, promotion of STEM
(Science, Technology, Engineering, and Mathematics) studies for girls, grants to universities
to create new degree programs, new positions and new laboratories, and study exchanges
with foreign countries, in order to reinforce passion among the young generations [
4
].
However, strengthening passion cannot be the only answer. Raising salaries, improving
career opportunities, compensation, and benefits are necessary actions to reverse the trend
of young people interested in engineering who now massively prefer software to the
lab. The other major unknown that will affect the future of the IC industry concerns
the trade war between the U.S. and China and, to a lesser extent, the Ukrainian crisis.
Developments in these tensions are leading to partial or even full supply chain decoupling
from markets that are no longer global, causing major concerns for the profitability of
foundries (especially those at the forefront) facing such severe constraints and market
limitation. The effects of the Ukrainian war are on commodity and energy prices, supply
chain constraints, and overall uncertainty. The future of the semiconductor ecosystem,
however potentially disruptive it may continue to be, is closely tied to these critical issues,
whose effects will need to be carefully considered.
Funding:
This research was partially funded by the University of Catania, under grant
PIACERI 2022.
Institutional Review Board Statement: Not applicable.
Informed Consent Statement: Not applicable.
Data Availability Statement: Not applicable.
Conflicts of Interest: The author declares no conflict of interest.
Chips 2022, 1 168
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